Monday, 7 September 2009

G20 In Yet Another Fake Action

Is that very funny how the G20 is doing it again? As the crisis unfolded, some 'out of line' people suggested that banks should perhaps be treated as utilities. They were wiped off the table. Now, that it is becoming clear that the largest economies of the world will again fail to harmonise real policy action, they are pledging to clamp down on the banks together instead. The previously marginalised view of regarding banking services as utilities is returning via plans to increase capital requirements. Banks will be asked to put down more money to back their actions.

The trouble with all of this, is that there is no distinction being made between banking services that aims at the domestic market and banking services that are essentially international in nature: global financial hubs. While there is merit to the idea that domestic economy focused banking provides general services not dissimilar to some characteristics of utilities, it would not be too difficult proposition to defend that the regulations around that part of the industry were in most countries in not too bad shape. Arguably, the US and the UK perhaps were exceptions, but their troubles would not have necessarily translated into a global recession. It was the second form of banking, namely that with global coverage and global reach, that caused the negative spiral. There is no reason for us to believe that this bit of finance has anything to do with being a utility. (Perhaps far in the future, this may change, but it is definitely not the case now.)

2 comments:

This popularist banker bashing that our so-called elected leaders love to spend their time with is ludicrous. Having to issue more shares to backup potential losses is exactly the same as the requirement to cap bonuses, just on a larger scale. Neither makes any sense, and the maximum they can achieve is to lull the uninitiated into a false security and perhaps some satisfaction from silly vengeance. we will all burn again

Funny how most observers and commentators keep celebrating this round of the G20 summits. Here are for instance, Robert Peston's laudatory words. It seems that the fact that a few governments now manage to do more than just empty words and shortsighted protectionism is a cause for celebration. Sure, the bar is pretty low.